JURIST Guest Columnist Iryna Chelyshava of Vlasova Mikhel & Partners, a Belarusian law firm, discusses a recent decree by the Belarusian government drastically expanding the use of cryptocurrency…

On December 21, 2017, Alexander Lukashenko, the President of the Republic of Belarus signed Decree No. 8, “On the Development of the Digital Economy” (“the Decree”), aimed at the development of the digital economy in the Republic of Belarus by regulating blockchain, cryptocurrencies, tokens, mining, smart contracts, and defining the legal status of such new subjects as crypto-platform operators and cryptocurrency exchange operators. The rules of the Decree are unique, and is in some ways more advanced than even the most highly developed jurisdictions.

The Decree entitles legal entities and individual entrepreneurs who are residents of the High Technology Park (the HTP) to perform operations with tokens (including cryptocurrency). Others can use tokens in the territory of Belarus through residents of the HTP.

From a legal point of view, the most interesting aspect of the Decree is the regulation of newly introduced technological instruments such as blockchain, tocken, and smart contracts.

The Decree defines the blockchain as a sequence of blocks built on the basis of given algorithms in a distributed decentralized information system using cryptographic methods of information protection, that contains information about operations performed in such a system. Despite the fact that the definition does not cover any legal aspects of blockchain use, the advantage of the definition is that it is very broad and can cover many possible implementations of the blockchain. The definition covers other distributed information systems in which centralization elements can be present, no matter on which platform they are implemented, in addition to the “classic” blockchain. This gives elements of technological neutrality to the appropriate regulation.

The digital sign (token) is defined as a record in the transaction block registry (blockchain), another distributed information system that certifies the rights of the owner of the digital sign (token) to civil the objects of civil rights and (or) is a crypto currency. While cryptocurrency is defined as a bitcoin, another digital sign (token) used in international turnover as a universal means of exchange. We can conclude from these definitions that the token is chosen as a general concept, which covers both traditional cryptocurrencies and tokens produced during the ICO. Basically, the token is defined as digital representation of a certain civil right, implemented on the basis of blockchain technology (other distributed information system).

The Decree does not specify the nature of the certain civil right, and therefore the concept of “token” is provided with a high degree of flexibility taking it beyond the narrowest understanding of this phenomenon as the result of ICO. The requirement of the existence of a token in distributed information system is provided, in our opinion, in order to distinguish token form security. However it does not resolve the possible conflicts of the legal regime applicable to the law underlying the token and the legal regime of the token itself that could arise. These issues cannot be modeled or anticipated now, so the answers will have to be found already in the practice.

The definition given in the Decree for cryptocurrency lists it as a version of the token; that is, a record in the blockchain, which is used internationally as a universal means of exchange. Therefore, the definition recognizes an objective fact, which the European Central Bank has already pointed out: that the cryptocurrency performs at least some functions of money. However, the recognition of the cryptocurrency as a universal means of exchange does not mean that the Decree allowed its free use in the territory of Belarus as it is only possible to exchange cryptocurrency for another currency, electronic money, tokens. The characteristic of international use is similar to one used in Japan and means that for recognition of a token to be a cryptocurrency it is necessary to recognize it as such not only in the territory of the Republic of Belarus, but also in other countries.

In general, the definition of cryptrocurrency given in the Decree is very progressive. However, for now the Decree does not provide the criteria of cryptocurrency that would distinguish it from tokens. Also the approach to define cryptocurrency as variety of token is interesting; however it is not possible now to predict if it will be successful.

The Decree contains the definition of smart-contract, which is the first definition of the smart contract in the world fixed at the legislative level. A smart contract is defined as a program code intended for functioning in the transaction block registry (a blockchain), another distributed information system for the purpose of automated execution and (or) execution of transactions or the performance of other legally significant actions”.

The definition of the Smart Contract proposed in the Decree seems to be very successful. It is not confined solely to the technical understanding of this phenomenon and is broad enough to encompass various approaches to understanding of smart contract that exist now: as a way to automate the implementation of the “traditional” civil law contract and as a self-sufficient contract, the terms of which are set out in the form of program code and which can be concluded and performed without the participation of a person. In case of distribution of smart contracts in the foreseeable future any special adaptation of the concept of the smart contract to this form of contracting will not be required, however it does not exclude the need to develop special legal norms regulating the distribution of risks of technical errors and illegal influences from outside to its operation.

Many provisions of the Decree regulating transactions with tokens (cryptocurrencies), are very progressive, particularly provisions for smart contracts, cryptocurrencies, regulation of ICO procedures and others. However, more concrete understandings of these provisions created in the Republic of Belarus will appear only after acceptance of all necessary accompanying legal acts. At the same time, their practice and their application will play a key role in assessing the attractiveness of this jurisdiction for potential investors and participants of the HTP.

Iryna Chelyshava is an associate attorney at the Belarusian firm of Vlasova Mikhel & Partners, one of the country’s leading full service law firms. The firm’s English language website can be accessed here: http://en.vmp.by/

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